Google To Purchase Nest For $3.2 Billion As It Goes After The Connected Home

Today, Google took a giant step into the fast-growing connected home space.

The tech giant announced that it is acquiring Nest, maker of the popular learning thermostat, for $3.2 billion in cash. Nest, created by former Apple SVP Tony Fadell, has grown rapidly since launching in 2011. Its line of household hardware products—including a thermostat and recently launched smoke detector—received raves for its forward-thinking industrial design, clever software, and savvy technology.

With its the purchase of Nest, Google gets a stronger foothold in the connected home industry—and brings a talented team to Mountain View, including Fadell and cofounder Matt Rogers, two leaders intimately involved with the creation of Apple's iPod and iPhone.

Just as Google's Android operating system allowed the search giant to gain access to a whole new set of customers on smartphones and tablets (as well as wearable computers like Google Glass), Nest could enable Google to deliver a new set of experiences to the so-called connected home, the catch-all term for bringing the Internet of things to household infrastructure, such as refrigerators, televisions, and heating and energy systems. Nest is arguably better positioned than any competitor to finally create the operating system for the connected home—by bringing its design know-how to a slew of unloved, antiquated household products, Nest is sneaking its hardware and software into your living room and kitchen and bedroom. It's a clear play to eventually link them all together and create the home of the future.

It's a massive market that Google would love to tap into: Home energy management systems alone are estimated to become a $4 billion market in the U.S. by 2017.

In a statement, Google CEO Larry Page said the company is "excited to bring great experiences to more homes in more countries," and highlighted how Nest's products are making strides in household safety and energy efficiency.

While Apple, Google, and Microsoft dominate PCs, mobile devices, and car consoles, no company has taken control of the house yet. Nearly every Silicon Valley player, from HP to Dell to Intel, has detailed its vision for the future of the connected home, but the fantastical future vision videos created over the years have amounted to nothing more than impressive displays of CGI. Nest, on the other hand, has actually started to execute on the promise of the connected home by creating a standard protocol for the house. If Nest is able to get there first, it'll be able to force other future players to build on its platform—if anyone wants to make some connected smart refrigerator or TV or toilet, the devices will have to speak Nest’s language. That's the kind of leverage that could make Nest (and now Google) a major player in the industry.

"From the beginning, our vision was to create a conscious home. A home that is more thoughtful, intuitive—and nice to look at. No one had cracked the code and we were confident we could do it with the right product, the right team, and focus," Fadell wrote today in a blog post. "Google will help us fully realize our vision of the conscious home and allow us to change the world faster than we ever could if we continued to go it alone."

Perhaps the more compelling part of the deal is acquiring Fadell's talent. One of the most prominent characters in the Valley, Fadell helped usher in the mobile era at Apple before leaving to start Nest. Arguably more than any other Apple veteran, Fadell has built his startup with an Apple-like DNA, infusing Nest's products with a strong sense of design, brand, and purpose. It's certainly a huge coup for Google, one of Apple's fiercest rivals. (Apple was reportedly not a potential bidder, whereas Google Ventures, the company's investment arm, has long been an investor in Nest.)

As part of deal, according to Google's statement, Nest will continue to "operate under the leadership of Tony Fadell and with its own distinct brand identity."